 and welcome to Hawaii Together on the Think Tech Hawaii Broadcasting Network. I am Joe Kent, Executive Vice President of the Grassroot Institute of Hawaii, and we're a non-profit Think Tank dedicated to advancing individual liberty, economic freedom, and accountable government. I'm filling in today for Dr. Akina. At the Grassroot Institute, we're always trying to work to transform Hawaii into a place where people have more opportunities to prosper. But one person says Hawaii can learn lessons from the UK about what to avoid and creating a better business climate. So here to discuss entrepreneurship and Hawaii's economy is economist Dr. Gerard Derricks, who's also the new director of the Center for Entrepreneurship and Education at Hawaii Pacific University. Loha Gerard, how are you doing? There's a little correction in the Center for Entrepreneurship and Economic Education at HPU. Oh, wonderful. Thank you. And so you're going to be educating about entrepreneurship and economic education here. Is that right? Well, that's right. Yeah. So I mean, Hawaii is a small state with big economic problems. And we're all familiar with these. So high cost of living, lower wages for comparable jobs compared to the mainland, and so... Oh, yes. We're very familiar with the economic challenges here. And I'm so glad that you're here to talk more about them. So could you tell us first, though, about your background? Sure. Yeah. So actually, I was born and raised here in Hawaii. But like so many of us, I kind of wanted to see the world a bit. So after high school, I traveled a bit. I actually did my undergrad in Japan, which is not all that unusual for Hawaii students. And then from there, I went to London. I studied at the London School of Economics. I got a PhD there. And I liked living in the UK and then got a job in Oxford. But always in the back of my mind, I wanted to come back and be back in Hawaii, contribute to the community here. And there's this new center opening up here at HPU. And I had a chance to come back. And I'm excited to be here. Well, we're so glad to have you back in Hawaii. And welcome back, I guess I should say. So now what is your goal at your position at HPU? Right. So part of it is a traditional academic role. So I'll be teaching, also doing research in economics. But a major thrust of this center is actually to help educate Hawaii's youth about economics. And of course, if you're actually teaching economics, well, that means you're going to be teaching free market economics. You can't have one without the other. And so that's part of this initiative. Another part of this initiative, which of course is also in the name is entrepreneurship. So to make Hawaiians more aware of entrepreneurship and give them a bit more support and understanding of what it would take to succeed in entrepreneurship and to bring that mindset to Hawaii. And of course, this is to hopefully, on the one hand, improve economic conditions here. And a part and parcel with this is to, as we educate people, to help improve policy as well. Because in democracy, it's the people that really matter for pushing forward policies. I see. Now you've lived in Hawaii and in the UK. And now you're back. So what similarities and differences do you see between the economic policies here and there? Well, yeah. I mean, there's a lot of similarities. I mean, on the one hand, Hawaii is known for its relatively high taxes. UK has also quite high taxes. Cost of living in the UK also substantially higher than the rest of America. And actually, coming back here to Hawaii, I think Hawaii is actually cheaper than the UK. You get a lot more value for your money here. And you do in the UK, which is interesting to see. Another big social issue, it's becoming more divisive all the time. I know it's especially even in the last couple of years become more to the front. And Hawaii is the high cost of housing in Hawaii, in the UK. So I actually lived in the most expensive location in the United Kingdom when it comes to houses, price of houses versus median incomes. So it was a ratio of about 11 to one in Oxford, which is where where I was living. And it's becoming a huge social issue. Everyone kind of knows growing up that there's there's no hope at all of me being able to buy. When you say 11 to one, you're saying that if someone makes a certain amount during the year, it would take 11 times that for them to afford paying off a house, right? 11 times their salary. This is before taxes. That's right. So if your salary was $1 a year, an average an average cost of the house would be 11 bucks is essentially the equivalent there. I see. And that's of course before taxes. So probably a third, at least of your taxes are being taken off of your salary is being taken off by taxes. So it's more like about a 16 to one type of ratio that we're looking at. And that's if you spend no money on food, no money on clothes, no money on vacations, you're not buying a car, and so on. So right. And in Hawaii, I believe that figure is around six to eight for us. So if it's 11 in the UK, then that means this is one city in the UK. So I think. Oh, yes. Yes. That's right. The UK as a whole might be something similar, like six to eight. I have to look at the numbers. But Oxford was particularly high because basically Oxford is really a suburb of London. It's about an hour away by train. But the housing cost is high there. So now what is the reason for that though? Why is it just because people are greedy? Or why is that? Well, it's exactly the same reason why housing is expensive in Hawaii. On the one hand, you have a growing population. And that's that's the case with the UK, especially in terms of immigration. And on the other, you have a extremely restrictive supply environment. In the UK, it's much worse. It's actually much worse than what we have here in Hawaii. Most people in the UK will live in these these terraced terraced houses. And basically, these are all kind of workhouses from back in the mid 19th century, where it's just one house that's just right next to the other. You can hear your neighbor vacuuming and having a row with their with their kids or whatnot. And the amount of space you have in your home is much smaller. Typically, people don't have garages or places to park very conveniently. You have a lot less space, actually, but still price prices were really comparable in Oxford to what they were here a couple years ago. I know now now prices are much higher. So I'm not sure if it's exactly one to one like it used to be. But you pay a lot more there for less in the UK. It's the same. It's the same root causes in the UK. It's just we've had probably more time for this to compound. And what are the root causes, by the way? Well, back in 1947, so after World War Two, what happened was is that the development rights for land were totally nationalized. So prior to that, you could essentially build certain restrictions what you wanted to on a given on a given plot of land. But the state said, no, no, no, those property rights, they're now ours. And now you have to request permission must any time you want to alter any structure whatsoever. If it's not like some garden shed, basically, anything bigger than that, you need permission in order to change that. And basically, this is very difficult to get. It's similar to the historic restrictions in Hawaii, where if a building or area is marked as historic, then it's very difficult to change the building. So then we have all these buildings that are very old and they're nice to look at, but hard to update. So is that the case in UK too? Yes, but it's much more extreme. It's as if every single house have this designation, historic designation as a word, and there are historic designations where you can't even change like internal fixtures of the house and all kinds of things, and you're criminally liable if you change things. But yeah, I mean, I was living in a house that was built in the 1850s in the UK. And it's not because I wanted to, I would have preferred a more modern housing, but you're just not allowed to build it. That's interesting. In Hawaii, a lot of the housing, especially in downtown Honolulu, was built in the 60s and 70s. And since then, the housing policies have become very restrictive, in fact, the most restrictive in the United States. And that's made it much more difficult to build new housing. So as a result, we have all of these aging buildings where the plumbing is going bad and the roofs needs repairs and the elevators are going out and the HOA fee, the homeowners association fees, are starting to tick up. And that doesn't seem to be going in the other direction. So in the UK, is that a problem in the UK as well? Well, just if you think the problems are bad now, just wait a hundred years and see what your houses look like then in that situation, the expense of upkeep. In that case, I mean, you get all kinds of problems. I mean, very imaginative plumbing, shall we say, some of these old houses and wood that's just rotting apart from decades, decades of use and exposure, brickwork, also similarly falling apart. It's a big problem. And basically, it's just slap, dash, repair it for the next person to come along. We don't have any of these new builds to any significant degree to deal with this. And we haven't had that for many decades now. So let's go to another topic. Taxation in Hawaii is among the worst in the nation in many areas. And it impacts job creators as well. Now, what is the taxation level like in the UK? Well, we have some taxes that are comparable. So I'd say income tax on a federal plus state basis is pretty similar. In the UK, you can't say it's very different. So high, high punitive. One of the things that we do have in the UK that's significantly higher than here is here we have the excise tax, which is in all but name, of course, just a sales tax. They don't want to call it that. That's what it is. It's a sales tax, but it also hits at every single level in the production chain. So it kind of ratchets. It kind of rolls up like a snowball and hits the consumer at the end, where the tax is actually built into the price of the product. So the general excise tax is a little different than a sales tax, but it's thought of as a sales tax. That's right. I see. I see. Right. Because it's not about the sale of the final goods. Okay. You're right. That would be different. In that sense, you're right. It basically compounds. And so very difficult to kind of unravel at the end exactly what's being attributable to this tax. So yeah, maybe they are comparable, but in the UK anyway, we have the value added tax, the so-called VAT, which is just on the sale of the final goods and services. And so we get to see right up front what the total charge is. But it's 20 percent of a wow. Yeah. 20 percent. Well, we will talk a bit more about taxation and some other laws that are similar between Hawaii and the UK. When we return, I'm Joe Kent at the Grassroot Institute and don't go away. I'm Christine Linders, physical therapist and board certified orthopedic clinical specialist. And I am the host of Movement Matters, a show that is designed to bring you the best physical therapy tips and exercises so that you can have your best body and do all the things that you love. You can watch my show every other Tuesday at 11 a.m. on ThinkTechHawaii.com where I show you instructional videos from the top of your head to the bottom of your toes to get your body feeling its best. Remember, life is better when you listen to your physical therapist. I'll see you on Tuesday. Aloha and welcome back to Hawaii Together. We're talking today with Gerard Derricks, the new head of the entrepreneurship and economic education center at Hawaii Pacific University. We just finished talking about taxation, although I do want to ask one more thing. It's hard to compare the taxation levels between Hawaii and the UK because Hawaii's tax is kind of a hidden tax. So we're not really sure how much of a percent it takes from the goods, but you just said in the UK it's a 20% tax, basically. And so what does that do to businesses and entrepreneurs? Yeah, I mean, a sales tax is very punitive from an entrepreneurial standpoint because it comes before you've actually made a profit, right? So you've got to factor this in already. So most types of corporate income tax is based off of, well, if you make a profit, well, then we're going to tax you. But a sales tax is different. It says, if you're selling something, we're going to take this share. So that's going to dampen risk-taking activities, kind of dampen people's enthusiasm for starting out. And a lot of new businesses, especially a lot of new businesses, are going to lose money for the first year or two. Entrepreneurs, they're like everyone, they need to learn their business, learn what works, what doesn't. And while you're trying to sustain that, to have to pay sales taxes on profits you're not making just makes it even more difficult and makes you probably more willing to throw in the towel before your endeavor finally bears fruit. So dampen risk-taking and makes it more difficult for the little guy to get started, I would say. Well, I hope Hawaii learns a lesson from the UK on how hard it is to do a business and the effect that taxation has on entrepreneurs as our taxes, again, are being asked to be raised again by lawmakers. Now, another law that's similar to a tax it adds cost is the Jones Act. Some people think of it as like a Jones Act taxed. The Jones Act, of course, is that over a hundred-year-old law that protects the American shipping industry. And it has now, we've done an economic study on how much that has added to the cost of living in Hawaii. And you can get that at grassrootinstitute.org. But what is your take on the Jones Act as an economic policy? I think Hawaiian should be angry about it. It's a totally anti-Hawaiian law requiring the cost of living in Hawaii to be much higher than they would otherwise be. If you think about it, so this law was imposed a hundred years ago. So on the one hand, Hawaii wasn't even a state. It wasn't until it was a 57. So we didn't have proper legislative representation when it would have come when it came to actually putting this law into place. And so we should feel disenfranchised very much so by the imposition of this law. And so I think that that's an important bit. Another is that so one of the arguments for this law is that it's going to, it's important for domestic security, so national security. Well, any military strategist will tell you that the landscape has changed vastly since the 1920s, air travel, nuclear warfare. Now we have drones. So I think that the military justification for this law, I mean, any reasonable military strategist, and I could be wrong because I'm not a military expert, but it would seem to me that, well, the U.S. has been at war for 20 years at least in the Middle East now. And we didn't need the Jones Act to protect us from the Taliban. That was clearly wrong. And if we did have a war with China, well, I don't see how a few merchant marine ships or whatever it is, these cargo ships are going to help block these intercontinental ballistic missiles from landing here. So the national security aspects of it are a bit outdated, you'd say. So now those are really interesting arguments. And I look forward to talking with you more about the Jones Act and a lot of other regulations that affect Hawaii's business climate. But I want to talk now about the positive because we want to talk about how to solve Hawaii's problems. So what would you do to create a more business-friendly climate in Hawaii? That's a good question. I mean, coming from the U.K., it's quite clear to me that Hawaii does still have some great advantages. And one of those is our connection to the mainland and that we are a unified economic market with that mainland, which means that actually the value that we get for our money is still much greater than probably almost anywhere in the world. The U.K., we just had Brexit where the United Kingdom left the European Union common economic area, so we no longer have free movement of goods between the EU and the U.K., also no longer a free movement of labor. But we have that, of course, being a state, we have that protective bar of commerce laws with all of the rest of the United States. So that's an incredible benefit that's not to be poo-poo. When you go into Ross or you go into Costco here, the type of value you can get for your money is incredible compared to the rest of the world, for sure. I see. So lean into our advantage in being part of the United States and all the benefits that comes with it. And also, I want to ask you about tourism, because, of course, that is the golden goose in Hawaii, but there are many people who feel that we have too much tourism, and there's a debate there. So how do you think about that question? I mean, I find it kind of perplexing. I think you should be wanting to really do our best to maintain our competitive position with tourism and want to promote and increase the amount of tourists that are here. I mean, that's just going to redown to a stronger economy, to higher wages, to better opportunities for our children. What would you think about how we can bring in as many tourists as possible to help our economy in a sustainable way? And I think that that's definitely, I mean, definitely possible. I see. Now, you have a lot of eminent economists at your alma maters in LSE and Oxford, and I was just curious. Do you have any favorites that you'd like to talk about, or are there any economists living or dead that you admire? Yeah, one of my favorite economists is also an LSE alum is Friedrich Hayek, and not only for his economic ideas, and of course, his great debate with John Maynard Keynes. Yeah, but also his insight into legislation was also, and I think you won the Nobel Prize for that while at the University of Chicago. Incredible work. I'm also a fan of Ludwig von Mises, but in terms of living economists, I'd say that my favorite living economist probably be Richard Werner, who studied at Oxford, and now he's at the Montfort University, and I think his ideas on actually basically what he's uncovered through his research is that banks actually meant money. They create money when First Hawaiian Bank and Bank of Hawaii is giving you a loan. They're creating that out of thin air. When you pay back a loan, you're destroying money there, and this actually has really interesting implications for how the economy works, because mainstream economics cannot explain at all the Japanese boom and bust that we experienced very palpably here in the late 80s and early 90s through our current models, but Richard Werner actually spent a lot of time in Japan working as an investment banker before he became an economist, has actually uncovered this mechanism, and I think I was also shown through this actually how we can harness the power of money creation through the banking system to funnel that towards entrepreneurial endeavors and therefore drive economic growth and prosperity as has happened historically in Germany with their small banks that focus on lending to small businesses and also as we used to have and still do to a certain extent in the United States, although before the savings and loans crisis, we had a lot more small banks in the United States. They're gradually getting killed off, but we still have more banks on a per capita basis compared to most of the world. I see. Well it sounds like what you're saying is property rights, low taxation, low regulation, access to capital are all components to a better climate for entrepreneurship, but in closing I was curious what is your advice for Hawaii as we look at the UK and where you've come from there and what should we do? What shouldn't we do? Yeah, I mean advice. Well, you know one of the things I would wish is that politicians would take a different stance towards businesses at the moment. They seem to have an almost antagonistic stance towards businesses. They don't really seem to care what happens to someone who's invested basically their life savings and maybe decades of their life into their restaurant or a bar or nightclub or whatever it might be. It seems like that they just don't care. Well, just deal with it. Just figure it out, this new environment and we don't care. We're just going to impose what we want to impose and it doesn't matter when really they should be like, well, you know, we need to preserve these entrepreneurs, keep them running along and excited about operating in Hawaii and wanting to expand and wanting to grow and we want their kids to look at what's happening there and their colleagues to look at that and say, yeah, you know, I could be an entrepreneur too. I could create my own business and to foster that type of environment. And I think it's going to be difficult to really change the culture. It's interesting how sometimes we use taxation as a punishment and other times we tax like businesses but still want them to thrive. So either way, it's a punishment is what you're saying. Yeah, it is a punishment and the lockdowns and restrictions on tourism and, you know, and comments to the media that, oh, don't come to Hawaii as has happened recently with prominent politician here. I mean, that's just it's just unfathomable, you know, think about that really. Well, thanks so much for giving us your perspective, Dr. Derek's, and I really appreciate you joining us here on Think Tech Hawaii. My name again is Joe Kent and I work at the Grassroot Institute of Hawaii. Thanks so much for joining us and aloha.